Construction is dangerous work. Workers’ compensation insurance can provide protection for both workers and their employers, and it’s typically required under state law.
The Benefits of Robust Construction Workers’ Comp
If an employee is injured on the job, workers’ compensation insurance, also called workers’ comp, can provide coverage for medical expenses and lost wages. If a worker is killed on the job, workers’ comp insurance can also provide death benefits to the employee’s beneficiaries. Benefits are typically provided using a no-fault system, meaning that the injured worker receives benefits regardless of who is to blame for the incident. However, benefits may not be available under certain circumstances, such as if the injuries were caused by the injured worker’s intoxication or horseplay.
Coverage is of obvious benefit to workers, who could face financial devastation following a workplace injury without workers’ compensation benefits, but it is also beneficial for employers. The no-fault system generally limits litigation. In fact, in many states, workers typically cannot sue for workplace injuries if the employer has workers’ compensation coverage in place, although there may be some exceptions when third parties or acts of gross negligence are involved. Most claims are handled according to the rules of the state workers’ compensation program.
This coverage is important for all industries, but it’s particularly important for an industry that’s as high-risk as the construction industry. In fact, the U.S. Bureau of Labor Statistics says that nearly one in five workplace deaths that occurred in 2022 were in the construction industry. Nonfatal injuries involving days away from work occurred at a rate of 31.5 injuries per 10,000 full-time workers between 2021 and 2022 in the private construction sector, which is significantly higher than the rate of 22.6 injuries per 10,000 full-time workers seen by all private employers.
State Workers’ Compensation Insurance Requirements
A majority of states require most or all employers to maintain workers’ compensation insurance. However, coverage requirements can vary considerably. In some states, all employers are required to maintain workers’ compensation insurance. In other states, only employers with a certain number of employees are required to carry coverage, although this number is typically very small, such as three or five.
The rules may be especially strict for construction businesses due to the risks involved. For example, in Florida, employers are typically only required to maintain workers’ compensation insurance if they have at least four employees. However, construction companies are required to maintain coverage if they have only one employee – and for LLCs, the owner is typically regarded as an employee, making workers’ comp a requirement.
Texas stands out as an exception. Texas does not require most private employers to carry workers’ compensation insurance. However, private employers that have contracts with government entities are required to maintain workers’ compensation insurance for the employees working on the project. Coverage may also be required by other entities. For example, a general contractor may require subcontractors to maintain coverage.
Even though some employers are not legally required to maintain workers’ compensation coverage, they may still choose to do so to help protect themselves from costly lawsuits.
Workers’ Compensation Requirements for Subcontractors
Although businesses are typically required to buy workers’ comp insurance to cover their employees, the rules surrounding independent contractors and subcontractors can be more complicated.
Once again, requirements can vary significantly from state to state. Some states do not require independent contractors to maintain workers’ comp. Likewise, sole proprietors with no employees may not be required to maintain coverage. In other states, coverage may be required. There may also be specific rules for subcontractors and other independent contractors in the construction sector.
Some businesses that use independent contractors may require all contractors to carry their own workers’ compensation insurance, potentially along with other coverage types like commercial general liability insurance and professional liability insurance.
Keeping Your Workers’ Compensation Rates Down
Workers’ compensation rates are typically based on several factors that include the entity’s industry, total payroll and experience modification factor (EMR).
The construction industry is considered high risk, so construction companies can expect to pay higher-than-average rates. Your company’s experience modification factor, also known as ex-mod, is another key factor. EMRs take into account claims history. In simple terms, if your company has lower losses (i.e., less and/or smaller claims) compared to similar construction companies, your ex-mod will be below 1, and this factor could be used to lower your insurance rates. On the other hand, if your company has greater losses compared to similar construction companies, your ex-mod will be above 1, and this factor will be used to increase your rates.
Therefore, one of the best ways to keep your workers’ compensation rates down is to keep your claims under control. One way to do this is by implementing strong worker safety policies, training employees on those policies, verifying that safety policies are being followed, and generally building a culture that prioritizes safety.
If injuries occur, it may be possible to mitigate the loss with strategies like using a telephonic nurse to quickly triage the situation and recommend the most appropriate treatment or offering a modified duty program to help employees return to work safely and quickly.
Are you and your workers protected?
Don’t wait until an employee is hurt to start thinking about workers’ compensation – take steps now to protect your business and your workers.
Higginbotham’s construction insurance specialists can help you secure workers’ comp coverage, along with any other commercial policies and surety bonds that you need to safeguard your business. Request a free, personalized business insurance quote today.
